Telefonica Czech ‘Disappointed’ With Auction Terms: CEO

Telefonica Czech Republic AS is
“really disappointed” with rule changes for a radio-spectrum
auction as proposed by the regulator, Chief Executive Officer
Luis Malvido said.

“We’re still under consultancy, so we will give our
feedback to the regulator, but this is so far away from what we
expected,” Malvido told reporters after a news conference
Telefonica held in Prague today. “We’ve been very surprised and
this is damaging our business case with our intention to
continue investing.”

The Czech Telecommunication Office this week proposed new
terms for the spectrum auction, including allocation of two
blocks in the 800 MHz band to a new entrant. On March 8, the
regulator unexpectedly canceled a previous auction after four
months over concerns that “excessive” bids of over 20 billion
koruna ($1 billion) would result in higher prices for customers
and slower investment.

Telefonica is considering “further” steps after the
consultancy period on the terms ends on May 8, Malvido said. PPF
Group NV, a company controlled by Czech billionaire Petr Kellner, is pressuring the regulator and the government by
saying that it will abandon the auction if some proposed terms
are changed, which is “unacceptable,” Malvido said.

PPF, which bid in the previous auction against Czech units
of Telefonica, T-Mobile and Vodafone, said on April 9 that it’s
ready to take part in the spectrum sale. It also said technical
parameters and the sale’s speed are key to its participation.

Auction Concern

PPF is concerned that existing operators will block the
auction by prolonging discussion of terms or by lobbying the
government to postpone naming the new head of the telecom
office, or CTU, which is decisive for starting the sale, CTK
newswire reported yesterday, citing the company’s head of
investment. The term of CTU’s current head, Pavel Dvorak, ends
at the end of the month.

Telefonica announced today that it’s offering new tariffs
for customers, including a package of unlimited calls and text
messages to all networks, with 1 gigabyte of data for 749 koruna
a month with a two-year contract. Telefonica Czech shares were
up 1 percent at 1:48 p.m. in Prague.

“The price war begins before a possible fourth mobile
player comes,” Vera Sutedja, a Vienna-based analyst at Erste
Group Bank AG, wrote in a report to clients today. “We expect
to see falling average revenue per user and higher off-net
traffic would result in Ebitda margin pressure in the future,”
said Sutedja, who has a “reduce” recommendation on Telefonica
Czech’s shares.

The average monthly price for a 2 gigabyte bundle and 200
minutes of calling outside the network is 60.9 euros in the
Czech Republic, the second-highest in the European Union after
Greece, according to a study by Rewheel, a Helsinki-based market
research group.